Pay gap widening on Wall Street

Top end grows as average compensation stagnates

By

JackieCohen

SAN FRANCISCO (CBS.MW) -- The pay gap is widening in financial services. Across the industry, employee compensation barely moved from its five-digit average over the past year, while the top 25 achievers doubled their nine-digit incomes in the same time frame.

During the first quarter of this year, average compensation in the financial services sector was $72,820.80 annually, including bonuses and benefits, compared with $62,691.20 the previous year, according to the U.S. Department of Labor. The increase in this average is more attributable to the rise in employment than actual pay raises, because hiring rose significantly over the past year. See related story.

By contrast, the top 25 hedge fund managers doubled their compensation over the past two years: Cash income among this group averaged $207 million in cash last year, compared with the previous year's $110 million, according to Institutional Investor's Alpha. See full story.

"The average compensation figures are low because there are a lot of employees at the branch level and in processing and operations," says Andrew B. Collins, a financial industry analyst at Piper Jaffray. Furthermore, "the new job growth is occurring in retail, and that's not a high paying area."

The low average also stems from the exodus of financial jobs to areas outside of the New York tri-state area, experts say.

But the pay gap appears at nearly every company in the sector. The typical chief executive of a financial services company pulls in nearly $11 million annually, and more than half of that comes from bonuses and benefits, according to Salary.com. Seven-digit compensation packages go out to the second- through ninth-highest ranked executives at financial services firms, according to Salary.com.

A significant portion of the compensation gap stems from the way bonuses are distributed, explains Salary.com's Bill Kolman, senior vice president of compensation. For the folks at the top of this food chain, "2003 was an unexpectedly good year. There had been a lot of layoffs prior to that, so fewer employees got to divide up the bonus pools, thus increasing executives' take," he said.

Waiting for bonuses

Financial employers usually pay bonuses at the end of their respective fiscal years, but that is beginning to change. With a view toward retaining executives for longer stretches of time, some companies are stretching their incentive programs into two-year or even three-year cycles, sometimes beefing up the payments to compensate for the longer waits. In the short term, however, these moves make some incomes more uncertain than they were in the past.

Further mixing things up is the uneven pace of the economic recovery, which is pushing up some compensation packages faster than others.

"Some sectors are doing better than others," affirms Ian Brown, editor of eFinancialCareers.com in London. "Many fixed income people are looking at upwards of 100 to 150 percent rises in pay, because it's turning into a seller's market again. Hiring has stepped up, so a lot of people are getting counteroffers -- 50 percent higher is not out of the ordinary."

Such percentages are all relative. The Department of Labor reports that the mean income for personal financial advisers is $79,290. The mean for financial analysts is only $70,040. For people employed by exchanges the mean is $71,830, and it's $60,990 for brokers and other sales representatives.

"You have to be careful about means and averages, as they can distort the data," points out Jim Spellman, a spokesman for the Securities Industry Association. "Obviously, the top people in any business get paid appreciably higher than midlevel management or support staff."

Numerous studies support this assertion. The non-profit group United for a Fair Economy said CEOs of 365 major companies surveyed earned an average of $8,099,988 in 2003, compared with just $26,884 annually for the average production worker. That's a ratio of 301-to-1, up from 282-to-1 in 2002. This ratio peaked at 531-to-1 in 2001. However, the ratio of CEO-to-worker pay was just 42-1 in 1982. See related story.

If nothing else, these figures deflate the reputation of the financial services industry for being one of the higher paying ones out there.

Average Joes clearly outnumber the millionaires across the economy.

Changing jobs? Got a vacancy to fill? Have a workplace story to tell? Send all of your employment news to jcohen@marketwatch.com.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.